5 ETFs for Protection in Another 2008

No one can know with complete certainty if this is a full-fledged bear market or not. But suppose it is.

No one can say for sure if the S&P 500 is going to fall in half, as it did in 2008. But suppose it does, or worse.

Nor does anyone have a crystal ball to accurately foresee the fate of other assets you may own — bonds, real estate, business properties and more. Suppose these also fall in value like they did in 2008. Then what?

I know. Most experts argue that, even in the worst-case scenario, you can just sit tight and wait for the inevitable recovery. But how long will that take? Few people are considering the question. Fewer still are providing the answers.

So with this kind of uncertainty, what do you do?

You don’t want to willy-nilly liquidate your assets in case this turns out to be another premature alarm.

And even if you were totally convinced that a cash-raising selling spree is the right path for you, you’re still bound to have assets that are hard to sell or tough to let go: Your home. Choice investment property. Your personal business. A private trust you don’t control.

How do you protect yourself?

One of my favorite vehicles is a special category of exchange-traded funds — single-leveraged inverse ETFs, designed to go up in value when a particular market index goes down.

The Last Great Bull Market

The next four years are going to be one of the most challenging times America — and the world — has ever faced. In fact, I believe the next four years will contain the most important economic events of your lifetime. Events that will shape your financial future and the financial future of all those you care for, for decades to come … That’s why I urge you to read my latest e-book, Winds of World War III … You’ll get the facts you need to protect yourself, along with what you need to do to prepare for this last great bull market. Click here now for your free copy! -Larry

Internal Sponsorship

But before I name names, first let’s review five guidelines for using them in this environment …

Guideline #1. Raise cash. If you have investments that are particularly vulnerable to declines, and if they’re liquid enough to sell easily, why not do so? Then you won’t need to hedge nearly as much.

Maybe you’re reluctant to sell because you don’t want to take a loss? Or perhaps because you don’t want to take a profit and pay the taxes? Either way, it makes little sense to hold onto liquid investments that are likely to decline substantially.

Guideline #2. Focus especially on ridding your portfolio of stocks that are very high risk. Needless to say, they could go down a lot faster than any hedges go up. So the losses they cause could be difficult to cover.

Of course, no one can tell you with absolute precision which stocks in your portfolio are truly the riskiest. But you can get a pretty good idea by looking them up at our new www.weissratings.com website, which gives you immediate access to ALL of our stock ratings. If your stock is rated D+ (weak) or lower, it’s very likely to be more vulnerable than average.

Guideline #3. Wait for market rallies before adding most hedges. Remember, they’re inverse investments. So when the market is down, they’re more expensive; and it’s when the market is up that you can buy them at a better price.

Guideline #4. If you prefer just a single ETF to give you a broadly diversified hedge, consider ProShares Short S&P500 (SH). It’s designed to rise 1% for every 1% decline in the S&P 500 Index, and usually does so with relatively little slippage in that formula.

Guideline #5. Better yet, build a mini-portfolio of inverse ETFs that target particular sectors or regions. Here are just a few examples …

1. ProShares Short MSCI EAFE (EFZ).

Weiss Research’s Larry Edelson — spot on with his forecasts for oil, gold and currencies — sees major declines ahead in Western Europe and Japan.

Their economies are slipping. Their debts are overwhelming. And their governments have abused their big-gun rescue tools to such an extreme that they’re now backfiring in a big way.

This ETF’s benchmark is heavily weighted toward European markets, including those in the most trouble:

Italy, Portugal and Spain, which have never truly recovered from their life-threatening debt crises and are now again on the brink of rolling over … Germany, riddled with falling industrial production, weak exports and sagging sales … France, which has just declared an “economic and social emergency” … and the eurozone as a whole, where all kinds of production, from cars to mines, just suffered its worst decline in a year.

How much could this inverse ETF make if global stock markets suffer a 50% decline?

Well, they’re already down 16% from their 2015 peak. So in a 50% bear market scenario, that would leave another 34 percentage points to go on the downside – and a similar amount in potential profits on this inverse ETF.

2. ProShares Short FTSE China 50 (YXI).

China’s market is already in a long-term decline.

So if you bet against it with this inverse ETF, yes, you have the disadvantage of missing the first phase of that trend. But you also have the advantage of powerful deflationary forces working in your favor.

Indeed, anyone who thinks China’s doldrums are similar to run-of-the-mill cyclical recessions needs to wake up and smell the coffee.

On top of that, last year brought some of the worst corporate earnings in half a decade, sinking property construction and big overcapacity almost across the board.

All bad news for China’s stock market; all trends with signs of continuing; and all positive for this inverse ETF.

3. Direxion Daily S&P Biotech Bear 1x ETF (LABS).

Since biotech has been one of the world’s hardest-hit sectors so far this year, some analysts are automatically assuming it will be one of the best comeback stories for the balance of the year.

If you agree, this is not the ETF to buy.

But if you see biotech as a big bubble that has barely begun to bust, and if you’re willing to bet on the real possibility that most Wall Street analysts are dead wrong, then this trend is not only your friend, but potentially one of the biggest moneymakers in the market today.

The facts: This inverse biotech ETF surged from a close of $40.18 per share on Dec. 31 to $59.44 on Feb. 11. That’s a 48.3% jump in just six weeks. All with no leverage. In a deep bear market, it could rise much more.

Granted, it’s a riskier, more-volatile bet than the others. But if biotech resumes its plunge, it would pay off nicely. And if you’re loaded with biotech stocks, it’s a much-needed hedge.

4. AdvisorShares Ranger Equity Bear ETF(HDGE).

With most ETFs, the managers’ goal is to match their portfolio as closely as they can to a particular index.

If it’s a standard ETF, their job is to get the ETF’s shares to rise 1% for every 1% rise in the index. If it’s an inverse ETF, they want to see their shares rise 1% for every 1% decline in the index. But either way, their target is a one-for-one match to the benchmark index (assuming no leverage).

This fund is different because it seeks to do better. The managers actively pick the investments and timing with the goal of outperforming.

They go short the stocks they believe to be the most vulnerable based on poor earnings, overly aggressive accounting and other warning signs. And they scrupulously avoid shorting the stocks they think will be resistant to a broad market decline.

Needless to say, like with any inverse ETF, this approach is almost invariably going to lose money in a bull market.

But when the market falls, if the managers are good at picking the worst stocks (not such a hard thing to do), it can really shine.

Sure enough, as you can see from the chart, HDGE rose nicely during the big market rout of August last year, outperforming a standard inverse ETF. And in the market plunge this year, it has done even better.

One Last Word of Caution …

In this danger-prone market, a fully invested, completely exposed, 100% unhedged stock portfolio could be a lot more dangerous than Wall Street is telling you.

By the same token, if you stuff your portfolio with too many bets on a bear market, you could be overexposing yourself to the real possibility of bigger-than-expected market rallies.

In my own investing, I favor a happy medium, and I trust you will too.

Good luck and God bless!

Martin

P.S. Boris and Kathy are EXTREMELY close to getting the green light on the two trades they are most excited about for 2016.

But when the moment comes … the minute they get a green light on this trade … they will rush complete trading instructions to members of their Global Currency Investor service.

But if you’re not a member of Global Currency Investor, you will never see them!

They would hate to see you miss out on these trades — and they know you would, too: There is simply too much money that could be made at stake — and since your membership is fully guaranteed, you can join now with confidence!

Dr. Weiss founded Weiss Research in 1971 and has dedicated his entire career to helping millions of average investors find truly safe havens and investments. He is Chairman of the Weiss Group, which includes Weiss Research and Weiss Ratings, the nation’s leading independent rating agency accepting no fees from rated companies. His last three books have all been New York Times Bestsellers and his most recent title is The Ultimate Money Guide for Bubbles, Busts, Recession and Depression.

{21 comments }

AndrewMonday, February 22, 2016 at 8:25 am

Dr Weiss,
Thank you for your guidance
Good Luck and God Bless

joeMonday, February 22, 2016 at 8:46 am

dr. Weiss,
great article. it is titled 5 etf’s for protection you only list 4. am I missing something. maybe it was supposed to be 5 guidelines for protection. where is the 5th etf hiding. please explain. thanks joe

MartinMonday, February 22, 2016 at 5:10 pm

Joe, the first ETF is in guideline #4 – SH. — Martin

Nickolas ChupickMonday, February 22, 2016 at 10:01 am

There is a proverb that says: NIV
If you want to build a strong enterprise – – you will build it through “wise planning” – – “keep a breast of the facts” – – “seek the counsel of the wise” – – and you will, ” profit wonderfully”
– – – Larry Edelson – – – Jon Markman – – – Dr Martin Weiss. I picked my three “wisemen”
– – – now let our journey continue – – – –
Note: seventh year walking with the Weiss Research Group.

barryMonday, February 22, 2016 at 8:53 pm

keep “abreast” — one word — nothing to do with mammary glands

hillarééTuesday, February 23, 2016 at 1:12 pm

kind of like a double negative

ArtMonday, February 22, 2016 at 10:15 am

What is the 5th stock you are recomending?

Art

RichardMonday, February 22, 2016 at 6:02 pm

Art. I would think it be SKF financials. Take a look.

ianMonday, February 22, 2016 at 10:23 am

Just thinking,maybe cos Wiess and Co.suggesting a crash,maybe I should go long,cant decide.

Bonnie EMonday, February 22, 2016 at 11:34 am

ian: me too! Most articles I read over the weekend suggest the current rally is overdone, yet the djia is up another 200 pts today.
Usually however, when “everyone” is expecting the market to go in a given direction, it surprises by doing the opposite!

JohnMonday, February 22, 2016 at 11:33 am

Joe and Art: SH is the 5th (actually the 1st listed). Read the article again. It could have been organized better, but 5 ETFs are named. (see the guidelines leading to the list of 4)

dééMonday, February 22, 2016 at 11:50 am

looks like the s&p chart is forming an inverted h&s pattern with a bottom on feb 11, a bullish sign.

DickMonday, February 22, 2016 at 12:54 pm

If we believe that the market is headed for a big crash, why not just do as your dad did back in 1929/30 and buy Gold? He did very well.
Timing is going to be everything, if we wait until the day/hour that the market crashes, we stand to lose big bucks; if we sell some of our stocks now (even those companies that are strong) and buy ETF’s that hedge against drops in the market, we stand to lose more gains in those company stocks “if” the bull runs longer….again, timing is everything, but not for the faint-hearted.
Thank you Dr. Weiss for your honest assistance in these days of great dishonesty.

God Bless you and your team !!!!

HowardMonday, February 22, 2016 at 12:54 pm

Hi Martin

Your helpful, thoughtful and considered advice is timely and you obviously care about your readers positions. For me the one I have most often to guard against is myself. Sometimes its over confidence or a miss reading of directions. I have sold off now from many winning positions and am happy to watch and observe while considering your recommendations. Thank you once again.

randyMonday, February 22, 2016 at 3:04 pm

The market hit a point of resistance,(2.22.2016) one I drew myself on 8/28/2015. It seems to be hovering around this line, today. The next fibonacci level is the 50% at 16,858. I don’t think it will go above the yearly 50% level, but I could be wrong. I expect the Weiss team sees the same thing. They are very good analysts.

BenMonday, February 22, 2016 at 5:23 pm

Martin, Do you have some problem with 3X inverse ETF’s? You get where you are going 3 times faster, then GET OUT!!!!

Horace LippincottTuesday, February 23, 2016 at 1:27 pm

none

NealTuesday, February 23, 2016 at 8:51 pm

When u short are u not responsible for costs?ie interest? Dividends etc,how do the inverse etf’s account for expense?

ray dMonday, March 28, 2016 at 5:41 pm

Martin: thanks for clear advice.

European govs are buying corp bonds – . are they trying to protect their own sovereign trusts! Loans to support loans?

Is there any role for individual bonds and gold in the coming disaster?

thanks

Bob KempMonday, May 16, 2016 at 2:57 pm

Dr. Weiss,
Congratulations on the creation of a wonderful, independent and valuable research and information company. It is nice to have a trustworthy source of advice in a world of static.
You and Larry Edelson have very different views of China. Basically, you (and many others) view China as a collapse waiting to happen and Larry views China as going through growing pains with long term growth and great investment opportunities ahead. Is this just a difference between short term outlook opposed to long term or something more?
Regards

Chad DayWednesday, June 15, 2016 at 1:18 pm

Larry knows China better than me so I trust his advice. He has been uncommonly accurate in predicting developments in this rapidly changing country which few westerners understand well.